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What will the financial meltdown's full effect be on the grains?

Agriculture.com Staff 10/06/2008 @ 2:21pm

There is substantial concern about the implications of the current meltdown in U.S. credit markets on the potential for economic growth in the United States and the rest of the world, says a University of Illinois Extension marketing specialist in a university report.

"That concern is reinforced by the sharp decline in stock prices and underlying economic indicators such as unemployment rates and housing starts," says Darrel Good. "Prospects of an economic slowdown threaten the robust domestic and export demand for U.S. agricultural commodities enjoyed over the past two years.

"A widespread economic slowdown could result in weaker demand for meat and for livestock feed. In addition, an economic slowdown might contribute to a weaker demand for crude oil and further declines in the prices of unleaded gasoline. Lower gasoline prices imply lower ethanol prices which imply lower breakeven corn prices for ethanol producers."

Good's comments came as he reviewed corn and soybean prices, which have dropped sharply over the past two weeks, continuing the slide from the early summer peaks. The decline in December 2008 corn futures now exceeds $3.60 and the drop in November 2008 soybean futures is nearly $7.

"Some of the recent decline reflects the larger supplies revealed in the USDA's September Grain Stocks report," he adds. "That report revealed September 1 inventories of soybeans of 205 million bushels. That is about 55 million more than expected after the release of the Census Bureau estimate showing August 2008 crush about 15 million bushels lower than expected."

The year-ending inventory resulted in a 91 million bushels increase in the estimated size of the 2007 crop. The increase reflected more acres and higher yields than earlier estimated. It has been clear since January 2008 that the size of the crop had been underestimated as "residual" use of soybeans revealed in the quarterly stock estimates has been extremely small, he notes.

"It was generally believed that the crop estimate would be increased enough to bring residual use up to a normal level," he says. "The large year-ending stocks were a definite surprise."

There is substantial concern about the implications of the current meltdown in U.S. credit markets on the potential for economic growth in the United States and the rest of the world, says a University of Illinois Extension marketing specialist in a university report.

September 1 inventories of corn were estimated at 1.624 billion bushels, 48 million bushels larger than projected in USDA's September supply and demand report. Summer corn feeding may have been less than expected due to feeding of low-priced wheat.

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